When a safety defect occurs, manufacturers often use product recalls to mitigate potential consequences. Although consumers expect on-time recalls for product defects, anecdotal examples suggest that firms may be passive in investigating potential defects and/or severely delay their recall decisions. We incorporate a Bass-diffusion product cycle model into firms' investigation and recall decisions when defects occur, and provide social planners with various instruments to deter long delayed recalls. Our theoretical model reveals three main results. First, not all firms will delay recalls; the firm that suffers more negative impacts from external channels and has a relatively high margin-to-recall-cost ratio will consider a delayed recall. Second, a firm that will consider a delayed recall also exerts a smaller effort in investigating product defects. Third, an earlier defect notice time may not necessarily lead to an earlier recall time and/or higher investigation effort; these decisions depend on a firm's learning on product defect and penalty for delay. Our model not only helps us understand how firms make their recall timing decisions, but also offers governments and regulation bodies new instruments (e.g., investigation efforts, penalty design, information disclosure, firm supervision) to help firms be proactive should a defect occur, thereby reducing potential casualties associated with delays in a recall progress.
